Customer Retention vs Customer Acquisition: Main Differences in E-Commerce

Almost every company compares customer retention vs customer acquisition at some point in its development. Businesses face a difficult choice - looking for new customers or focusing on existing ones. In most cases, combining the two methods in a specific proportion is the right option. We will explain customer retention and acquisition, their advantages and features, and which businesses they are suitable for. 

Customer Acquisition and Customer Retention: criteria for comparison

Customer retention is the creation of long-term relationships with customers to build loyalty and generate repeat sales. It is retaining an existing audience and increasing its value from a business perspective. Retention rates are often used to measure customer loyalty and satisfaction. If a person comes back, it means that the company has found the right approach to cooperating with them. 

Customer acquisition is the first sale of a company's product to new customers. The expansion of the audience increases the revenue and profit of the business. It also shows the company's extensive growth and the quality of its commercial offer. If a business succeeds in attracting new customers, it means that it has chosen the right marketing, pricing, and product policy. 

When comparing customer retention vs acquisition, the following features can be distinguished:

Although these methods have many differences, it is worth remembering that customer retention and acquisition are complementary components, not opposites. Although retention is generally considered more effective and profitable, you need to attract new customers first and only then work on their satisfaction and loyalty.

What to Focus on in E-Commerce: Acquisition vs Retention 

Any business has to combine both methods. It's impossible to expand while completely ignoring customers' needs - this will lead to the loss of reputation. And it is also impossible to work only with regular customers - sooner or later, they will leave, so others will have to take their place. 

The question is, in what proportion does a company combine customer acquisition and retention? The answer depends on several factors, which we will discuss in more detail.

Life cycle

A young startup needs to focus on customer acquisition. The company must earn enough money to maintain quality service and encourage customers to make repeat purchases. 

But a business cannot grow forever. Sooner or later, it will reach a point where attracting new customers will require more investment than the amount of potential profit for the entire period of cooperation. In this case, acquisition slows down to a pace that allows it to maintain a constant audience size without significantly reducing it. 

Thus, the life cycle of most companies involves a gradual transition from acquisition to retention.

Business model

A subscription-based company should focus on retaining existing users. Usually, an acquisition is expensive in this segment. So, investments can be returned within a few months. Such a business cannot ignore the quality of service even at the very beginning; its quality of service must be presented as its main competitive advantage.

If a company sells goods or offers traditional services with a one-time fee, the focus will shift to searching for new customers. In this case, it is crucial to optimize the acquisition cost. It is necessary to find the right scale of marketing campaigns to provide a stable return on investment.

Frequency of purchases

The more often customers need a product, the more a company should focus on retention. For example, working with a loyal customer base is beneficial in the food, pet food, and household goods industries. Businesses operating in these industries spend a lot of money on customer support and loyalty programs, as well as on creating useful content and organizing various events.

When it comes to expensive durable goods, the balance will shift to attracting new customers. Car dealerships and real estate agencies need to constantly expand their customer base, as the waiting time for a second purchase can last several years. In this case, it is more profitable to invest in large-scale advertising campaigns and PR.

Market development phase

To succeed, businesses must take into account global trends. In a phase of rapid market growth, the best strategy is to attract as many new customers as possible at minimal cost. In such a situation, you can pay less attention to retention and ignore churn. 

It is essential to predict accurately when the market reaches saturation and stagnates. At this stage, a comparison of customer acquisition vs retention will show clear advantages of the latter methodology, so you should slow down your advertising campaigns in advance and increase support for loyal customers.

If the market shrinks, the only right strategy is to retain. Acquisition can only be used when it is economically substantiated. But usually, it is about competing for customers. By improving the quality of service and providing other unique advantages of your business, you can entice customers from other companies.

Goals

Let's be honest. The main goal of any business is profit. Some companies don't set themselves high missions like providing quality customer service and solving their problems. They are created to quickly reach the peak of commercial success and then sell to large corporations, receiving money without obligations. This model also has a right to exist, and the obvious choice for it would be to expand rapidly through customer acquisition. Such venture startups are very popular in the financial and technology sectors.

But most companies are created with a long-term perspective in mind. If owners plan to generate income for a long time, a healthy combination of acquisition and retention, with a particular emphasis on the latter, will be beneficial for them.

Customer Retention vs Customer Acquisition: how can Claspo help

Claspo is a simple platform for creating effective widgets to enhance customer acquisition and retention strategies. Here are just a few tasks that Claspo can complete for you:

... and more. 

Claspo offers over 700 ready-made templates for 36 different use cases, so you can easily find the one that best suits your current strategy and customize it according to your needs in our simple editor.

Claspo also allows you to target your widgets to specific audience segments. Such a personalized approach motivates 76% of consumers to make a first purchase (acquisition) and 78% to repeat purchases (retention). You can now show your widget only to first-time website visitors or those from a specific marketing campaign, advertisement, communication channel, etc. And the list of possibilities is constantly expanding!

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